People have a tendency to think that the current times are the worst times. It’s human nature. And there have always been reasons to look on the dark side. Just look at recent history: Gulf war, 9/11, the Dotcom bust, the 2008 banking crisis, COVID. Take your pick.
But, despite this, there’s no doubt 2022 was a pretty tough year. A war in Europe and the worst inflation (in Europe and the US) for 45 years certainly took their toll.
Virtually every industry vertical was affected by the geo-political disruption – including telecoms. Inflation led to higher costs, a workforce demanding higher wages and a customer base with depleted budgets.
This was a shock. During the pandemic period the telecom sector had mostly flourished – at least in the consumer-facing world. People spent more time than ever before on mobile apps. In 2021, the average time spent reached 4.8 hours per day in the top mobile-first markets.
So 2022 was a reality check in many ways. This was reflected in the volume of telecom M&A.
Infrastructure ruled telco M&A in 2022
According to Bain & Company, telecom M&A deal flow slowed through the first three quarters of 2022 compared with the same period in 2021. While deal values fell by 40 percent year over year from $115 billion to just $69 billion.
Of course, the headline numbers don’t tell the whole story. The telecoms sector is an umbrella for a wide range of different activities. And in 2022, the most active by far was infrastructure.
For the last few years, telcos have been either selling their cell sites and towers or spinning them off into semi-autonomous entities. This has led to the creation of what are known as servecos, netcos, infracos and towercos.
Financially, this unbundling makes sense
A Deloitte M&A Outlook report says netcos typically achieve EBITDA multiples of 15-25x, compared to an average for traditional telcos of 6-7x. It also says that, after separation, the value of the new companies combined can be 40 per cent more than the original integrated company.
These fundamentals have driven lots of activity. Credit Suisse estimated €15 billion worth of tower sales in the four months of 2021 alone. And these infrastructure deals continued in 2022. They included the move by Telenor to sell 30 percent of its passive fibre infrastructure business to an investment consortium for more than $1 billion.
In fact, the Bain & Co report says infrastructure deals made up about 55 percent of global telecom deal value and an eye-watering 91 percent of total deal value in the third quarter alone.
So it’s fair to say that 5G, infrastructure, tower, connectivity and network security are still ‘ruling’ the growth, followed by IoT and platform business.
M&A outlook: The year ahead for A2P and CPaaS
What about messaging? Well, the A2P messaging market is still growing. Enterprises still rely on messaging for their two-factor authentication processes. More and more of them are discovering the power of the channel for alerts and marketing. Demand is growing. Meanwhile, the emergence of CPaaS makes it possible for SMS specialists to diversify into voice, video, rich messaging and more.
This expansion has driven much of the M&A activity in messaging over the last few years. In 2022, the headline deals included:
- Sinch acquired voice specialist Inteliquent.
- Infobip bought global VoIP provider Peerless Network.
- Twilio made a minority investment of up to $750 million in Syniverse.
- RouteSMS Solutions, a subsidiary of Route Mobile, purchased a 100 percent equity stake in Mr Messaging FZC for €38 million.
- Sinch completed its purchase of Pathwire, a platform for transactional and marketing email.
So what’s the M&A outlook for messaging in the coming months?
I’m certain that more deals will follow in 2023. Providers look to expand their range of services, improve their anti-fraud protections and boost their geographical footprints.
GTC will take a close interest in market movements. We formally launched our dedicated Mergers & Acquisition advisory service in September 2021. As the world’s only independent and unbiased messaging consultancy, this was a logical move.
Over the last 18 months or so, the GTC M&A consultancy has handled a wide range of M&A-related requests, with 60 percent focused on finding acquisition targets that fit a telco’s particular growth strategy.
In fact, we have already concluded our first 2023 M&A deal, assisting iBasis in its purchase of Dimoco Messaging. The deal adds more than 100 direct MNO connections to iBASIS’s network and expands its commercial presence thanks to DIMOCO office presence in Liechtenstein, Austria, Germany, and Serbia.
And the M&A outlook for 2023? We are very confident that it will be a busy time in our space. This year has all the ingredients to supersede 2022 in terms of volume and value.
Global Telco Consult (GTC) is a trusted independent business messaging consultancy with deep domain knowledge in application-to-person (A2P) services. GTC provides tailor-made messaging strategies to enterprises, messaging service providers, operators and voice carriers. We have expertise in multiple messaging channels such as RCS, Viber, WhatsApp, Telegram and SMS for the wholesale and retail industry.
GTC supports its customers from market strategy through service launch, running the operations and supporting sales and procurement. The company started in 2016 with a mission to guide operators and telcos to embrace new and exciting opportunities and make the most out of business messaging. For more information or industry insights, browse through our blog page or follow us on LinkedIn.